The U.S. labor market showed signs of a slowdown in July, as the unemployment rate increased to 4.3%, the highest in nearly three years. This rise from 4.1% in June marked the fourth consecutive monthly increase, according to the Labor Department's report on Friday. The increase from a 50-year low of 3.4% in April 2023 has led economists to forecast a significant shift in the Federal Reserve's monetary policy.
With the labor market cooling and job growth slowing, the Federal Reserve is now widely expected to cut interest rates in September. Economists are predicting a 50 basis point reduction in borrowing costs, arguing that the central bank may be lagging in easing monetary policy. The slowing economy has been evident in various economic indicators, including sentiment surveys and an increase in unemployment benefits claims.
The employment report highlighted that nonfarm payrolls rose by only 114,000 jobs in July, significantly below the average of 215,000 jobs per month over the past year. This figure also fell short of the 200,000 jobs per month needed to match population growth, exacerbated by a surge in immigration. Despite economists' forecasts of a 175,000 job increase, the actual numbers were disappointing.
Several Wall Street institutions, including Bank of America Securities and Goldman Sachs, have revised their rate cut expectations, anticipating more aggressive action from the Federal Reserve. "If Fed officials had seen this report, they would have cut rates by 25 basis points this week," said Brian Bethune, an economics professor at Boston College. "There is absolutely no justification for continuing to exert an elevated level of monetary restrictiveness on the economy."
The data also revealed that the average workweek decreased slightly, suggesting a potential impact from Hurricane Beryl, which affected Texas during the survey week. However, employment gains in construction and leisure and hospitality sectors, alongside the healthcare sector's robust job growth, indicated mixed effects from the weather.
While some sectors, such as healthcare, construction, and leisure and hospitality, saw job increases, other industries faced declines. The information industry lost 20,000 jobs, and professional and business services, including temporary help services, continued to shrink.
Federal Reserve Chair Jerome Powell acknowledged the labor market changes, describing them as "broadly consistent with a normalization process." However, he noted that policymakers are closely monitoring the situation for signs of a more significant downturn.
Despite the jump in the unemployment rate and other economic concerns, some experts argued that the situation does not indicate an impending recession. Tara Sinclair, director of the GW Center for Economic Research, stated, "This doesn't look like the start of a recession, where demand drops away from supply. But it's still weakness. The Fed has medicine to treat this weakness."
The broader measure of unemployment, which includes those underemployed and those not actively searching for work, rose to 7.8%. As the economy shows signs of weakening, all eyes are on the Federal Reserve's next moves, with financial markets expecting rate cuts in the upcoming months.
(Source:www.apnews.com)
With the labor market cooling and job growth slowing, the Federal Reserve is now widely expected to cut interest rates in September. Economists are predicting a 50 basis point reduction in borrowing costs, arguing that the central bank may be lagging in easing monetary policy. The slowing economy has been evident in various economic indicators, including sentiment surveys and an increase in unemployment benefits claims.
The employment report highlighted that nonfarm payrolls rose by only 114,000 jobs in July, significantly below the average of 215,000 jobs per month over the past year. This figure also fell short of the 200,000 jobs per month needed to match population growth, exacerbated by a surge in immigration. Despite economists' forecasts of a 175,000 job increase, the actual numbers were disappointing.
Several Wall Street institutions, including Bank of America Securities and Goldman Sachs, have revised their rate cut expectations, anticipating more aggressive action from the Federal Reserve. "If Fed officials had seen this report, they would have cut rates by 25 basis points this week," said Brian Bethune, an economics professor at Boston College. "There is absolutely no justification for continuing to exert an elevated level of monetary restrictiveness on the economy."
The data also revealed that the average workweek decreased slightly, suggesting a potential impact from Hurricane Beryl, which affected Texas during the survey week. However, employment gains in construction and leisure and hospitality sectors, alongside the healthcare sector's robust job growth, indicated mixed effects from the weather.
While some sectors, such as healthcare, construction, and leisure and hospitality, saw job increases, other industries faced declines. The information industry lost 20,000 jobs, and professional and business services, including temporary help services, continued to shrink.
Federal Reserve Chair Jerome Powell acknowledged the labor market changes, describing them as "broadly consistent with a normalization process." However, he noted that policymakers are closely monitoring the situation for signs of a more significant downturn.
Despite the jump in the unemployment rate and other economic concerns, some experts argued that the situation does not indicate an impending recession. Tara Sinclair, director of the GW Center for Economic Research, stated, "This doesn't look like the start of a recession, where demand drops away from supply. But it's still weakness. The Fed has medicine to treat this weakness."
The broader measure of unemployment, which includes those underemployed and those not actively searching for work, rose to 7.8%. As the economy shows signs of weakening, all eyes are on the Federal Reserve's next moves, with financial markets expecting rate cuts in the upcoming months.
(Source:www.apnews.com)
